Penske Presents: Survey Finds 3PLs Weathered a Tough Year

Third-party logistics providers are guardedly optimistic about future revenue growth within the industry and turning to near-shoring, capturing increasing amounts of data and adding services to boost profitability.

Those findings were reported in the 19th Annual Survey of Third-Party Logistics Providersauthored by Dr. Robert Lieb, professor of supply chain management at Northeastern University, and sponsored by Penske Logistics. The survey results were revealed at the Global Conference of the Council of Supply Chain Management Professionals today in Atlanta.

3PLs Profitable but Face Economic Headwinds

Of the 31 global 3PL companies that participated in the survey, 28 reported their companies were profitable during 2011, with three reporting they broke even, and three more reporting their companies were unprofitable. Global CEOs reported they continue to see increasing cost pressures on customers, continued economic uncertainty, and tightening capacity across modes.

Even though CEOs may have had a hard time meeting their revenue targets, they’ve been able to be profitable, Lieb said, adding that they’ve done so remaining flexible and responding to the market quickly. “That has been important to survive in this industry,” he said.

Near-Shoring Continues

As part of that agility, CEOs in all areas reported a move towards near-shoring.

Penske’s Joe Gallick said, “due to the greater potential for disruption and other issues affecting global supply chains, we are seeing that off-shoring has evolved into near-shoring.”

Lieb said many companies failed to consider all the costs and risks involved with manufacturing off shore. Rising costs in China and higher oil prices have made people reconsider.

“All of a sudden the price advantage you thought you had wasn’t as great as you anticipated,” Lieb said.

There have been several supply disruptions from natural disasters recently, such as the Tsunami in Japan, which made companies rethink their business continuity planning.

“In many cases companies had to shut down production because they didn’t have alternative sources or if they did have alternative sources they were clustered in the same region. That made them think more about sourcing closer to home,” Lieb said.

Gallick added that Penske is especially interested in seeing how near-shoring evolves in Asia in the coming years as local manufacturers increasingly service the growing needs of the local population.

Growth Outlook

Within the report, North American companies said they expect to grow 10 percent over the coming year with an industry growth rate of 6.9 percent.

To increase growth, logistics CEOs are targeting specific industries. More than half of the CEOs surveyed believe the medical devices sector of the health care industry will grow fastest during the next three years.

“The aging baby boomer generation and increasing role that technology plays in our medical system has led logistics companies to find great opportunities within all areas of the healthcare industry, from pharmaceuticals to medical devices,” Gallick said.

Twenty-three of the 31 companies surveyed already provide 3PL services to customers in the health care industry. “The healthcare industry has complex supply chains and they aren’t very efficient. 3PLs are targeting that as a key industry they’re trying to establish a presence in,” Lieb said.

Closer Customer Collaboration

All CEOs reported seeing more collaboration between large 3PLs and their key customers and said logistics providers are continuing to capture and use data more effectively.

Lieb said 3PLs can play a key role in helping customers manage their own data.

“Many of their big clients have grown primarily through acquisitions. When you acquire somebody, their information system doesn’t mesh with yours. If they can use a system through their 3PL, the 3PL can provide them with a kind of continuity across the supply chain,” he explained.

Nearly two thirds of the companies participating in the survey introduced new service offerings in 2011.

“There is a lot of pressure from the people who buy the services to have one-stop shopping. 3PLs start adding services because they don’t want to risk them going to someone else that can do everything,” Lieb said.

Rising Costs Driving Logistics Outsourcing

Gallick sees customers increasingly looking to outsource a broader range of logistics and transportation type services as they struggle to cope with variable costs for fuel, driver shortages, escalating costs of new equipment, as well as regulations such as CSA and HOS.

“The 3PL survey data reveals what we see every day, namely that the increasing complexity and higher costs of running and owning a private truck fleet for example make a very compelling case for switching to a dedicated transportation solution.”

“This is where full-service solutions such as dedicated contract carriage allow customers to better forecast and manage costs upfront and focus on their core offerings,” he said.

Comments

Risk mitigation seems to be a prominent theme here. Companies want to invest in human resources, but are a bit gun shy after the recession. Companies say they want to invest in new technologies, but also wish to remain “capital lite.”

Dr. Lieb makes a compelling case for near-shoring, and we at Supply Chaim Management Review, are hearing more about this strategy as well.

[…] will also provide CEO revenue projections for the next three years. The survey and its results are researched and analyzed by Dr. Robert Lieb, professor of supply chain management at Northeastern University. Joe Carlier, […]